Tax Type
Retail Sales and Use Tax
Description
Author royalties
Topic
Collection of Delinquent Tax
Royalties
Date Issued
11-24-1998
November 24, 1998
Re: Sec. 58.1-1821 Application: Retail Sales and Use Tax
Dear *****
This will reply to your letter in which seek correction of the retail sales and use tax audit assessment issued to your client, ***** (the "Taxpayer'), for the period of September 1994 through August 1997. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is in the business of publishing and selling legal books. A number of years ago, six coauthors prepared a written legal manuscript which is still used in seminars conducted by the Taxpayer and is also sold outside the seminar circuit. Over the years, the original authors of the manuscript have been retained by the Taxpayer to update the manuscript to ensure that the manuscript remains current. In exchange for the periodic updates and revisions the authors are entitled to 2% of the annual net profits derived from the commercial distribution of the manuscript. The authors can elect to discontinue their participation in the periodic updates at any time, without a penalty, and would likewise forfeit all rights to share in the net profits from the commercial distribution of the manuscript.
The auditor assessed the proceeds paid to the participating authors as taxable royalties. The Taxpayer believes that the proceeds paid to the authors are not royalties, but merely the payment for the rendering of a service, i.e., the updating of the original manuscript. The Taxpayer is requesting that the taxes associated with the payments to authors be removed from the audit findings.
DETERMINATION
Code of Virginia Sec. 58.1-609.5(1) provides a sales and use tax exemption for "professional, insurance, or personal service transactions which involve sale as inconsequential elements for which no separate charges are made....'
Title 23 of the Virginia Administrative Code (VAC) 10-210-4040, copy enclosed, addresses services and provides as a general rule that "charges for services generally are exempt from the retail sales and use tax. However, services provided in connection with sales of tangible personal property are taxable.' In the present case, the Taxpayer is not providing a service in connection with the sale of tangible personal property. As understood by this office, each author is provided a paper copy of the portion of the manuscript they are responsible for updating. The authors then update the manuscript and mark up their revisions and return the paper copy of the manuscript to the Taxpayer.
Based on all of the above, I find that the authors of the manuscript are providing an exempt service when furnishing updates to the manuscript. For this reason, I will agree to remove these payments from the audit findings. A revised assessment will be forthcoming.
If you should have any question concerning this determination, please contact *****, Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13501K
Re: Sec. 58.1-1821 Application: Retail Sales and Use Tax
Dear *****
This will reply to your letter in which seek correction of the retail sales and use tax audit assessment issued to your client, ***** (the "Taxpayer'), for the period of September 1994 through August 1997. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is in the business of publishing and selling legal books. A number of years ago, six coauthors prepared a written legal manuscript which is still used in seminars conducted by the Taxpayer and is also sold outside the seminar circuit. Over the years, the original authors of the manuscript have been retained by the Taxpayer to update the manuscript to ensure that the manuscript remains current. In exchange for the periodic updates and revisions the authors are entitled to 2% of the annual net profits derived from the commercial distribution of the manuscript. The authors can elect to discontinue their participation in the periodic updates at any time, without a penalty, and would likewise forfeit all rights to share in the net profits from the commercial distribution of the manuscript.
The auditor assessed the proceeds paid to the participating authors as taxable royalties. The Taxpayer believes that the proceeds paid to the authors are not royalties, but merely the payment for the rendering of a service, i.e., the updating of the original manuscript. The Taxpayer is requesting that the taxes associated with the payments to authors be removed from the audit findings.
DETERMINATION
Code of Virginia Sec. 58.1-609.5(1) provides a sales and use tax exemption for "professional, insurance, or personal service transactions which involve sale as inconsequential elements for which no separate charges are made....'
Title 23 of the Virginia Administrative Code (VAC) 10-210-4040, copy enclosed, addresses services and provides as a general rule that "charges for services generally are exempt from the retail sales and use tax. However, services provided in connection with sales of tangible personal property are taxable.' In the present case, the Taxpayer is not providing a service in connection with the sale of tangible personal property. As understood by this office, each author is provided a paper copy of the portion of the manuscript they are responsible for updating. The authors then update the manuscript and mark up their revisions and return the paper copy of the manuscript to the Taxpayer.
Based on all of the above, I find that the authors of the manuscript are providing an exempt service when furnishing updates to the manuscript. For this reason, I will agree to remove these payments from the audit findings. A revised assessment will be forthcoming.
If you should have any question concerning this determination, please contact *****, Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13501K
Rulings of the Tax Commissioner